Leaders and the nightmare of product recalls

In Charley and the Chocolate Factory, a few lucky customers discover in a candy bar a golden ticket for a guided tour of Wonkas’ magic manufacturing facilities.

In contrast, recently a single luckless German buyer found a piece of plastic in his Mars product. Cue not for a factory tour, but a monster product recall across 55 European countries. Millions of Mars Bars, Snickers and Milky Way products from the same factory are currently coming off countless shelves to go into candy bar purgatory.

Mars is taking a large financial hit. You don’t demand your products back on this scale without experiencing a logistical nightmare.

For example, the average success rate of an electrical product recall in the UK is just 10-20%, leaving potentially millions of risky items still in UK homes. How much harder will it be to get back mountains of dodgy Mars Bars?

As a private business Mars does not have to reveal the cost of its recall. But it’s certain to run into millions of dollars, pounds, euros and the rest. The potential reputational damage too is large, if unquantified.

Product recalls occur all the time. In some cases, they’re well documented in the media, such as the Coca-Cola recall mandated by several European countries, the recall of 1.2 million pounds of E-coli contaminated beef patties by Hudson Foods, or Intel’s recall involving problems with its Pentium processor.

The historical evidence is firmly on the side of acting decisively and ethically, ignoring the inevitable short term costs.

The first major product recall occurred in the 1980s. Tylenol’s involved 31 million bottles of the pain killer and made a hero of its maker Johnson and Johnson. There the CEO famously drew on the company’s strongly held culture to decide to bear the costs of a complete recall. At the time the firm had no insurance because such cover was so expensive.

Ultimately the speed and transparency of the Johnson and Johnson’s actions steady rebuilt consumer confidence and the company’s share price bounced back strongly.

To act or not to act

Lots of CEOs have faced the tricky ethical choice of whether or not to recall. Car seats, hover boards, dehumidifiers, roll up blinds, St John’s Wort tablets, Children’s’ activity cubes ceiling lamps and camembert cheese have all recently been subject to product recalls in the UK.

The choice of whether or not to push the button on a full recall can be an agonising one. Coca-Cola, for example, lost almost 10 percent of its stock value between the time Belgian consumers became ill after drinking its products and when the company chairman apologized in full-page ads in European newspapers.

The VW scandal which has resulted in large scale car recalls was allowed to escalate so the issue dominated headlines for weeks–see box below.

Similarly, it took Toyota more than a year to produce a fix for its faulty gas pedal; while GM delayed for a decade the resolution of its faulty ignition switch linked to 124 deaths.

In the case of GM, General Motors Co agreed last September to pay pay $900 million to settle criminal charges. CEO Mary Barra, brought in to revive the company’s fortunes and deal with the bungled recall, admitted the legal and public relations crisis has shadowed her for nearly two years and was

“a catalyst for meaningful change.”

Sometimes the ethical dilemma of whether or not to order a recall is solved by an industry regulator issuing mandatory instructions. But the most ethical leader action is to be ahead of any regulator response and do it without appearing to be pushed into it.

The failure of both Toyota and GM to handle their respective product recalls raised serious questions about their ethics as a company and by implications those of their leaders.

GM’s corporate citizenship statement included: “Doing the right thing remains at the core of ethical business conduct. “Toyota’s includes providing clean and safe products. Both companies and their leaders demonstrated by their inactions they did not “walk the talk” of ethics.

Lack of business integrity lies at the heart of many past recall crises. The apparent choice is whether to let the drive for profit trump the need to be ethical. In the cases of Ford, GM and VW it seems the sheer scale of what a recall involved proved too much for leaders. Profit became the deciding factor and integrity took second place, regardless of the know dangers to people’s lives..

Yet the recall dilemma is also an opportunity to publicly demonstrate integrity and show what it means to be ethical, by putting product quality and safety as a top priority

Mars’ voluntary recall happened with commendable speed– probably made possible by the fact that the company is still family owned. By acting decisively and in a fairly transparent way, Mars leaders have taken control of a situation, which could easily get out of hand in hours rather than days or weeks.

The decisions Mars’ leadership took will affect their company’s bottom line this year, and, possibly beyond. More important, if not handled well it could potentially destroy its long-prized reputation for quality assurance.

Testing leaders’ ethics

Any product recall tests the character, courage and integrity of a company leader. Mars’ decision to rapidly recall so much product is almost certainly in the best interests not only of consumers, but the long term future of the company, which prides itself on the pursuit of quality. Quite simply it was the right thing to do.

Companies that have successfully communicated product recalls start with taking full responsibility for the situation—even when, as happened with Tylenol someone was lacing their products with cyanide.

As part of taking responsibility, ethical leaders should explain what happened, offer an apology, and provide details about corrective action, which might include reparations such as money-back or product exchange offers.

In our media conscious age, an ethical approach also means using online resources. These might be interactive, online FAQ pages, images and videos. It would also now include an active use of social media to provide apology and information.

Ethical decision making is a form of philosophical reasoning that guides action. But when you’re facing a product recall cost zillions, theory tends to go out the window.

What seems to matter most is having a leader driven by integrity and the self confidence to do what is manifestly right.

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